“Interesting Times” For Toys

There’s a phrase of uncertain origin that’s often invoked as an ancient curse: “May you live in interesting times.”

As the toy and licensing industries work their way toward the end of the global show season – the moveable feast that travels from Hong Kong to London to Nuremberg to New York – they are indeed living through interesting times. Whether licensed or not, the toy and game businesses are trying to find their way through a period in which the proliferation of digital technologies are challenging the creativity and business acumen of even the strongest companies.

Toys are a cornerstone of the licensing business, accounting for more than $17 Billion in retail sales in the U.S. and Canada in 2011, according to results of the LIMA Licensing Industry Survey. That’s 15% of overall sales of licensed goods. In the Entertainment/Character segment, they accounted for 25.5% of licensed product sales.

The biggest issue facing the toy industry right now, says longtime industry analyst Sean McGowan of Needham & Co., is “how to compete with the tablet.” He and others talk about how it’s easy for a parent to buy an inexpensive app or game for a child to play on a tablet or smartphone – leisure time and dollars that in past generations probably would have been spent in large part on physical toys and games.

“The story of the year in the industry is that less has worked than in the past,” says Spin Master’s Adam Beder. “It’s a factor of the economy, and the digital age (specifically apps); for 99 cents or $1.99, you can entertain a kid for a while, so it’s less important to buy a toy.”

On the positive side, many cite the strength this year of the construction toy category, most notably by Lego, but also by companies such as Mega Blocks.
Beder was among several we spoke to that pointed to the fact that “Reaching kids is harder than ever. Traditional marketing on TV is not having as much of an effect” as the audience is diluted among a plethora of channels and platforms.

One licensor of properties that are primarily TV-based acknowledged that many of the old metrics are less straightforward than in the past. “What does ‘share of mind’ mean, what does ‘reach’ mean these days,” he asks, noting that it’s increasingly difficult to develop valid metrics that let licensing and children’s content executives truly understand which properties are having impact.

The challenge for toymakers – whether licensed or not – is to creatively and cost-effectively stay ahead of the game. The 2012 success of Activision’s Skylanders, which integrates physical toys into a videogame universe, along with Disney’s recent announcement of its similarly configured Infinity game, represents only the latest integration of digitalization into once-analog playthings. “Kids are going to expect a lot more out of everything they play with,” said Scott Bachrach of toys/electronics marketer Wish Factory.

But it’s also important to remember, as Beder says, that the success or failure what are sure to be future combinations of toys and video has more to do with content than with technology. “It will depend in large part,” he says, “on how good the game is.”